Detour Gold surmounting weak gold prices, CEO says

VANCOUVER — Detour Gold (TSX: DGC; US-OTC: DRGDF) is picking up momentum at its Detour Lake gold mine, 300 km northeast of Timmins, as the company anticipates first-ever positive cash flows since the operation reached commercial production two years ago.

President and CEO Paul Martin said in a second-quarter conference call that the company has achieved a number of milestones this quarter, which include reaching “significant” production rates at an “all-time low” cash cost of US$734 per oz. gold.

“I’m extremely proud of our team’s achievements,” he said. “Now we’re getting into the real improvement of the operation from multiple fronts … and we look forward to a run of free cash flow for the first time in the company’s history.”

Second-quarter production from the open-pit operation totalled 25.5 million tonnes of waste and ore­, in a 34% increase compared to the second quarter of 2014, boosted in part to finishing an extensive overburden removal program that slowed production last year.

The mill outperformed expectations, hitting a record of 5.2 million tonnes of ore, or 57,015 tonnes per day, which exceeded its daily design capacity of 55,000 tonnes, due to changes to its conveyors and secondary crushers.

Total cash costs improved, falling US$200 per oz. gold from the second quarter of 2014 to US$734 per oz. gold, thanks to the weakening Canadian dollar against the U.S. dollar. All-in-sustaining-costs amounted to US$1,030 per oz. gold.

During the quarter, Detour sold 123,296 oz. gold, compared to 107,206 oz. gold the year earlier. But despite the volume increase, revenue was hit by lower average realized prices of US$1,215 per oz. gold compared to US$1,294 per oz. gold the year before.

The cost of sales, including production costs, depreciation and depletion, generated US$147.5 million in revenue for the company, with adjusted net earnings reaching break even at US$544,000.

“With expectations of stronger operational performance in the second half and continued benefit of our 80% exposure to the Canadian dollar, the company can not only weather this weak gold price environment, but also increase its cash resources,” Martin added.

The company’s goals for the year are to lower cash costs and keep its daily waste and ore mining rate production guidance between 250,000 to 290,000 tonnes, focusing on higher grades from the eastern part of the former Campbell pit.

“We don’t want to chase tonnes because it’s capital intensive, and it’s higher risk from an execution standpoint,” he said. “Our plan has shifted towards controlling dilution and improving feed grades … which should lead to another step downward in cash costs at year-end.”

The company also intends to unveil its updated life-of-mine plan by early 2016, which will contemplate a second feed from Block A, 1 km northwest of Detour Lake, along with a tonnage rationalization study to optimize mining rates for both deposits.

The company is exploring the option of processing fines from its low-grade stockpile that run 0.62 gram gold per tonne, according to internal company studies.

“We must be adaptable to the current gold price environment that we are facing,” Martin said, adding he is “confident that the update will generate solid economics over a lower risk profile.”

Detour has an open-pit reserve of 15 million oz. gold within 459 million tonnes grading 1 gram gold, using a cut-off grade of 0.5 gram gold and a more than 20-year mine life.

“With over two years behind us, we certainly understand our capabilities and operational capacity much better now, so we can make the most informed decision on how best to proceed,” he said.

Detour Gold has traded within a 52-week range of $6 to $16.4, and closed at $13.2 at press time. The company has 170.7 million shares outstanding for a $2.3-billion market capitalization.

Meanwhile the Ontario Provincial Police and Ministry of Labour are investigating the circumstances surrounding an employee’s death at the mine on June 3, 2015.